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Counting the cost of the meltdown

While the International Monetary Fund suggests that the recession has bottomed out, all the signs merely indicate a pause in the crisis before a further lurch towards slump in the coming months.

The recession continues to deepen in Chile and South Africa, for example. Further shocks are to be expected as commercial property values decline, and rising unemployment forcing more workers to default on mortgage and credit card debt adds another twist to the downward spiral.

Germany’s economic ministry is working with its central bank on measures to deal with a second credit crunch expected early next year. Hartmut Schauerte, the economic state secretary says firms with weak balance sheets may struggle to roll over loans as they come due in coming months. Negotiations with banks could prove "very difficult", he admits.

The UK government’s gamble with quantitative easing, its last-ditch largely failed attempt to restore the flow of credit by printing money, is looking dangerously inflationary and is leaving buyers of government bonds increasingly jittery.

The costs of slowing the decline to slump, let alone any return to growth, are appearing in many forms. Alongside short-lived government sponsored scrappage schemes designed to clear millions of over-stocked cars, billions have been poured into “restructuring” the industry worldwide – the costs of mothballing factories and sacking workers.

Where workers have resisted – as in the now ended 77–day occupation of Ssangyong’s plant in South Korea – the price included the mobilisation of state forces in scenes evoking dystopian medieval pitched battles, with besieged workers armed with slingshots and bamboo staves taking on company thugs, helicopters dropping teargas and taser-wielding riot police.

UK tax income has fallen as economic activity has shrivelled and, at best, will continue at low levels for the foreseeable future while government borrowing to bail-out the banks will result in huge cuts in public sector spending in every area, whoever wins the next election.

It’s already beginning in at least 12 of the 50 states in America, and many more of its counties and cities. They have begun slashing services and forcing unpaid holidays on their employees as revenues from sales taxes, property taxes, investment income and service/building fees continue to plummet.

California's economy, the world's eighth largest, is expected to register a jobless rate near an agonising 13% next year. That state's attempt to reduce its massive $24 billion budget deficit includes three unpaid days a month for state workers to save $820 million. The unemployment figures leave out many of the illegal migrant workers from Mexico on whom the economy depended in the boom times. The loss of remittances is having a devastating impact on the families they left behind.

Michigan, home state of the bankrupt car industry in Detroit, has scheduled six days – a day a week – on which it won't pay about 37,400 employees to save $21.7 million by September 30.

The corporate-sponsored backlash against Barack Obama’s modest proposals for a state health insurance scheme in parallel with the existing for-profit schemes run by insurance companies are the palest of indicators of the political struggles to come.

Obama’s crisis also signifies that this is not the period when capitalism is prepared to grant reforms. Quite the reverse is true. For the mass of the world’s population there can be no acceptable solution to the deepening crisis without a wholesale transfer of productive resources to common ownership subject to democratic control.

Gerry Gold
Economics editor
19 August 2009

Charles says:

A valuable article as always. Just one point - which also relates to emails we exchanged months ago - what evidence is there that the quantitative easing has involved actually printing money? It seems to me that what I read on a BBC digital "in depth" news item on TV, that the Bank of England) "has bought up assets using money it simply declared to exist", is the reality. And that 125 billion is about a tenth of our GDP!

I wish more people would read about the way money is created by banks e.g. in the excellent magazine produced by Brian Leslie, "Sustainable Economics", whether or not they read Marx. As far as this vitally important economic factor is concerned, it seems to me that the UK Green Party is ahead of any other political organisation I know about. I am not a member, but I am considering joining mainly because they have a working group on Monetary Reform Policy. But I certainly hope that AWTW flourishes and I find your publications, like the one on the miners' strike,admirable.

Gerry replies:

Charles, Thanks for your comment. I'm glad you find our work valuable.

As far as I am aware, you are right about the mechanics of quantitative easing. It was done by manipulating figures on electronic balance sheets. No money was actually printed. I followed your link to the Green Party's Sustainable Economics magazine. On their 'About' page they talk about 'the basic rental value of land in its unimproved, natural condition', and 'the value of natural resources before any work is done on them'.

Their concept of 'value' (of a commodity) is thus quite different to that held by most mainstream, classical (Ricardo et al) and Marxist economists who distinguish between value in use which is determined by useful physical characteristics and value in exchange which is determined by the hours of labour necessary for the commodity's production. The genesis of the labour theory of value has been fundamental to much of political economy during the period of capitalist production. It can be traced back to William Petty in 1662. Unless labour is expended on a thing it can have no value in exchange - though of course it is possible to estimate the potential value which could be gained through some productive process.

Furthermore SE's attention to, reliance on and pursuit of monetary reform is quite different - opposed - to the dependent relationship between capitalist production and finance we've been studying, analysing, and reporting on and to the solutions we're proposing.

In fact, the Green Party has never been opposed to capitalism. They just would like it to be less destructive. Their limited focus on monetary reform as a means of restoring the capitalist system to albeit greener, profitable growth would result in unbearable costs to the majority of the world's population.

I hope this reply helps you to decide when considering membership of an organisation.

Charles continues:

Dear Gerry,

Thanks very much for taking the time to reply. I don't think, without more study, I am sufficiently knowledgeable to comment on your unfavourable view of the Green Party's Land Reform policy, which is similar I believe to those of a number of other "progressive" organisations in other countries, including America. I am using Fine and Saad-Filho's book as a "primer" to Marx's "Capital", which might help to get things clearer for me. However, I must add that I have never been in doubt about the crucial limitations of reformist policies. I do think though that some are better than others and, ironically, some are sufficiently radical or even revolutionary that there is no way they could be adopted under capitalism.

So some of these reformers, who are quite close to being socialists, might be forced see the light! You may have misjudged the Green Party a bit, I think. It would be very difficult, for example, for anyone
reading Green Party's Molly Scott Cato's book, "Market, Schmarket", to believe she is a supporter of capitalism, (the book's sub-title refers to the post-capitalist economy) though I think she expects too much from Co-operatives and perhaps local solutions. The same could be said for David Korten and
his "Yes!" magazine in the USA. He seems to believe in a kind of socialism with markets, which I find rather dubious, but it would be incomparably better than what we have now, and his two books are as big a condemnation of modern capitalism as you will find anywhere.

What bothers me is the lack of unity in the many movements which can be properly called "Left", at a time when there was never greater need for solidarity. If this continues I fear the capitalist system will remain dominant, become more dictatorial and repressive, and with oil, water and other resources dwindling and devastation from global warming, we could be heading for ecofascism.

I fully agree that mechanisms of money creation are only one aspect of capitalism, but they are a vital part and I still think that socialists should put more effort in explaining this gigantic fraud to the public. All we seem to have is fuming about about bankers' bonuses and the like, and too many people taken in by the mass media con that all we need is more regulation (even said by Thatcherites!).

I wish you and AWTW every success and greatly value your blogs.
then Gerry says:

Thanks for your broader reply.

Molly and I have exchanged reviews of each other's books. We've even met briefly. As far as I can gather her more radical views about capitalist production are not part of official Green Party thinking. We were both involved in leading workshops at the recent Climate Camp in Wales.

Unfortunately they were on different days so we didn't have the chance to debate side-by-side. My contribution was about the role of the state in defending the status quo - intended to warn campers about the likelihood and dangers of confrontation and the need for a much broader-based movement - as you suggest. I was intrigued to discover subsequently that Molly ended her workshop leading a hokey-cokey!

By the way, yesterday's Guardian carries an informative obituary of Edward Goldsmith the inspirer of the Green Party.

and Charles says:

I am pleased to hear you know Molly Cato, as the more contact between different anti-capitalist thinkers and activists the better - especially those who have good alternatives to offer, not just protests. I am not surprised that she is well to the Left of the official Green Party, particularly as I believe most of their economists did not accept the policies of their own Working Group on Monetary Reform, although that seems to be changing now. Perhaps there are many in these non-revolutionary "progressive" (for want of a better term) parties and organisations who settle for reform only because they believe, like Jonathan Porritt, that "capitalism is the only economic game in town". That would not be surprising considering the tremendous reach of corporate propaganda.

Greenpeace have also been suckered into allowing themselves to be co-opted too often recently, although historically their record is very creditable.

Re Edward Goldsmith, I took The Ecologist for years, although I was never comfortable that Zach Goldsmith was the editor for so long and I once wrote protesting that they had published an article by Thomas Friedman of all people (they didn't publish that letter, but they did accepted another on monetary reform).

This whole question of a myriad of protesting groups worldwide – often single issue but frequently undeniably anti-capitalist - and how enough cohesion can be achieved to achieve a significant breakthrough, is too involved for a short discussion. I think though, the key is international co-operation , which, tragically, never grew post-1917. The Internet could make a difference now we can hope, as long as we don't let Murdoch et al control it.

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